ACCC's action on dominant retailers cannot come too soon

Date: February 26 2013

THE powers of the Australian Competition and Consumer Commission are difficult to exercise - let alone to change market behaviour quickly. Often the regulator's words of warning matter as much as its muscle when it comes to ensuring consumers and the economy benefit from fair competition.

Barely 18 months into the job, the chairman of the commission, Rod Sims, is right to talk tougher about potential action against the dominant retailers Coles and Woolworths.

But before talk can become legally enforceable action, he must substantiate anonymous evidence on claims that they misused their market power through food supply deals. The commission must also complete inquiries into whether they have imperilled independent fuel outlets through discount petrol vouchers. The process is long.

In each case consumers are hardly revolting. Petrol discounts and lower food prices seem a bonus - in the short run. In the long run, though, they can easily reverse and harm the economy.

The public is entitled to be sceptical about the commission's apparently heightened concerns. The big two retailers have been allowed to expand to control about 80 per cent of Australian retail sales. Suppliers are under enormous pressure, while retail rivals in petrol and liquor are struggling. Recall, too, the commission's glowing endorsement during the past decade of petrol shopper dockets as pro-competitive.

The big two retailers feature prominently in the priorities for 2013 that Sims outlined on Thursday. He said he was revealing the list because ''we aim to say what we will do, and then do what we say. This way, over time, we hope that companies will take our warnings on problematic behaviour more seriously''.

Sims conceded the dangers in raising expectations of action.

Many milk and bread suppliers have long urged the commission to act decisively on price cutting and allegedly unfair treatment from retailers. They have not seen much yet. The Herald supports the commission's investigation while recognising the difficulty in moving beyond anonymous claims to verifiable, court-ready proof.

As the commission seeks evidence, there are some signs Coles is listening and the retailers are consulting the regulator on a voluntary code of behaviour. The test of any voluntary code, though, is its performance hurdles and penalties for non-compliance.

Given the difficulties in the area, the chief executive of Coca-Cola Amatil, Terry Davis, is right: a national debate is required about how the big chains use products as loss leaders to get customers through the door. In the long run, manipulative price cutting on loss leaders means fewer suppliers and retailers, which eventually means reduced choice and higher, not lower, prices.

The other area of commission concern, petrol shopper dockets, has reached a tipping point. To his credit, Sims set about investigating them soon after he arrived in the job. ''It's only now that you've got shopper dockets being offered for 8¢ over a five-month period,'' Sims told Senate estimates last Wednesday. ''The size and extent of these (discounts) have been going up and up and up. If they continue like this … how do these people (the competitors) survive?'' The shift from dockets to easier-to-use discount cards was part of the problem.

Sims cannot rip up the dockets or destroy the cards. He can investigate whether there is uncompetitive behaviour. If there is, he can talk even tougher than he has been. If that doesn't convince retailers to pull back, the commission faces long and complex legal action.

Cynics may suggest the problem arose only because the commission left the door wide open despite complaints being raised in 2004 and 2007.

That is even more reason for the commission to move quickly now to expose any adverse impact of shopper dockets on retail competition in fuel and whether petrol prices are rising overall as Coles and Woolworths increase profit margins.

The result of the commission's inquiries into shopper dockets is due midyear. It cannot come soon enough. When dominant supermarkets have the potential to misuse market power in new product areas, the commission is entitled to be loud and proactive.